CHICAGO -- Continuous replenishment programs work for Golden Cat Corp. Most of the CRP relationships with its retailer customers have achieved minimum goals of 40 turns per year and a 97% service level, according to Frank Krum, chief executive officer of the South Bend, Ind.-based company.
"Virtually all our customers are there. Many have exceeded that. Best of class would be Schnuck Markets, H.E. Butt, Hannaford and Wegmans. In those cases our performance is 60 to 90 turns per year, depending on the level of customer service, and 98% to 100% service levels," he said. Krum spoke here at the Joint Industry Conference on Efficient Consumer Response. He shared the podium with Randy Wedel, senior vice president of marketing and merchandising at Schnuck Markets, St. Louis. The two presented a CRP case history for Schnuck and Golden Cat, which began with a category review of cat box filler products in the pet aisle at Schnuck Markets as of March 1994. Golden Cat was the object of a leveraged buyout at the end of 1990. In the next four years -- prior to its acquisition by Ralston Purina Co., St. Louis, in April 1995 -- Golden Cat decided ECR would be its operating premise. During that period, its sales rose 28% and operating profit went up 37%, while head count declined only 15% and there was no price increase, said Krum. Four years of ECR increased inventory turns of raw materials from seven to 14 and turns of finished goods from eight to 19, which could be attributed mostly to continuous replenishment, Krum said.
The effects of continuous replenishment on Golden Cat have included lowered cost of goods resulting from longer production runs and having its own key suppliers on CRP. Cash flow is also "up significantly," he said. When the activity at Schnuck Markets began in March 1994, the chain had 6,127 cases on hand at an inventory cost of $37,988, with an average 76.1 days of supply. Service level from Golden Cat was 100%. Turns of the cat box filler were 7.6 per year.
Three more measurements were taken following implementation of continuous replenishment. In August 1994, Schnuck had 1,301 cases on hand at an inventory cost of $9,264, with an average 8.7 days of supply. Service level had dipped to 95%, but turns had increased to 47.
By January 1995, the chain had 2,730 cases on hand at an
inventory cost of $20,850, averaging 7.5 days of supply. Service level was down to 94%, but turns were up to 57 per year. The last measurement, taken in May 1995, revealed 1,777 cases on hand, inventory cost of $9,987, 8.0 average days of supply, service level of 98% and turns of 53 per year. Today the service level is up to about 99% and turns are 66 per year, according to Wedel of Schnuck. "We made decisions with the category manager. The most important thing was we arrived at a pricing strategy for take-away pricing. If we know Wal-Mart is selling cat box filler for $3.80 per bag and the supermarket's price is $4.20, what is the difference in that price that will allow the supermarket to be at a level where the consumer will think it is a good price and buy it vs. going to a mass merchandiser or pet superstore," said Krum. Schnuck and Golden Cat also developed a stockkeeping unit reduction tool that cut SKUs down to 28 from 39, he said. Golden Cat embarked on continuous replenishment based on the conviction that this would improve customer profit, giving the supplier a competitive advantage, according to Krum. Ralston Purina has found this to be true, he added. "Continuous replenishment is part of the continuum on how you will change your business to better serve your customers. The benefits we have received are part of our re-engineering process to today's marketplace and competition, and should not be attributed only to continuous replenishment. "You need to look at the larger picture. Is your company configured from both a management and supply standpoint to do business with the retailers who will survive in the year 2000? ECR is not dead. Its efficiencies are real. ECR is an enabler," said Krum. Schnuck Markets is presently on continuous replenishment with about 45 vendors, representing about 50% of its grocery volume, Wedel said. "We are looking for additional partners to go on continuous replenishment. We have increased turnover by 20% to 350%, depending on the category and the performance of our people and our partner's people. We have increased turns in every one of these projects, but sometimes have had modest results. From here, projects will get more difficult to put in place and partners will be more difficult to select. But we will proceed further," Wedel said.